McColl’s again warned profits would be lower than expected following continued difficult trading in its first quarter

Shares in McColl’s have lost more than half their value today after the c-store group confirmed it is in talks with lenders to prevent a collapse into administration.

The group, which employs about 16,000 staff and runs 1,100 newsagents across the UK, has been hit hard by supply chain disruption and lack of availability in recent months, issuing a number of profit warnings in 2021.

A statement this morning to the London Stock Exchange followed a Sky News story on Saturday that McColl’s is working with advisers to find a buyer for the group or third parties willing to inject fresh cash into the business. City sources told the news organisation McColl’s had “a matter of weeks to secure new funding”, with millions of pounds of its bank debt being sold to hedge funds and “few obvious options to guarantee its future”.

McColl’s said it had received the necessary agreement to roll forward its financial covenant test periodically, and continued to receive credit support from its key commercial partner to enable the discussions with its banks.

“The group continues to believe that a financing solution will be found that involves its existing partners and stakeholders,” it added.

Sky also reported EG Group, the forecourt operator owned by the Issa brothers, held talks to buy McColl’s but decided against it last week.

McColl’s confirmed it recently received an approach for the whole business, which was subsequently withdrawn. “There are no further discussions with that party or any other party in relation to an offer for the whole business,” the group said. “In addition, the group has also received indications of interest for parts of the business. The board will consider all options with the aim of maximising value for all stakeholders.”

There were also media reports that McColl’s wholesale partner Morrisons was also understood to be monitoring the situation with a view to possibly buying hundreds of stores out of administration.

McColl’s raised £30m in a placing in September to accelerate and enhance its Morrisons Daily rollout, with more than 200 of its stores now converted to the format.

The group said since the start of its new financial year on 29 November there had been “a tangible improvment” of product availability in stores.

However, the business saw a material step-down in footfall due to the surge in Covid-19 cases relating to Omicron, particularly over the Christmas period, impacting trading. While demand has since picked up, revenues in the first quarter are behind expectations.

As a result of the difficult market conditions in the first quarter, some of which are expected to continue through the first half, the board now expects FY22 adjusted EBITDA to be slightly behind current market expectations, and net debt in the region of £100m at the end of FY22.

Shares in McColl’s are down 54.9% to 3.2p at lunch time.